See, the problem arises because the law (s. 2(47)(v) &(vi) of the Income-tax Act) deems (a) the handing over of possession or (b) the enjoyment of property to amount to a "transfer".
The language of the section is as follows:
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a cooperative society, company or other association of persons or by way of any agreement or any arrangements or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
As you can see, the language is very wide. Now, even if you do not execute a POA, the fact of the matter is that the developer will enter upon the land, demolish the existing structures and build a new building. Surely, this amounts to "allowing of the possession of any immovable property to be taken
" and has the "effect of transferring, or enabling the enjoyment of, any immovable property
Also, by the time the AO takes up your case for scrutiny, considerable development on the land will have taken place. So, your arguing that you have not given any rights to the builder will be of no avail. If you do so, you will only embroil yourself in fruitless and expensive litigation.
The ruling in Mr. Jasbir Singh Sarkaria
221 CTR 100, 294 ITR 196 analyzes this position very well and there is also a judgement of the Bombay High Court on the same point in Chaturbhuj Dwarkadas Kapadia
(260 ITR 491). You can also read an article on this by K.K.Ramani in BCAS (http://bcasonline.org/articles/artin.asp?369
I would urge you to reconcile yourself to the prospect of paying capital gains tax and explore how you can minimize that by investing in s. 54EC bonds etc.